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Despite delays and $842,189 worth of embarrassment involving the U.S. Department of Energy, LG Chem Michigan Inc. says it is still determined to produce advanced batteries for electric vehicles at its new $304 million plant in Holland.

According to a DOE memorandum dated Feb. 8, last October the DOE’s Office of Inspector General received a complaint that LG Chem had “misused Recovery Act funds” because employees there “had little work to do and were spending time volunteering at local nonprofit organizations, playing games and watching movies at the expense of the Federal government and taxpayers.”

The DOE report on its investigation revealed that LG Chem Michigan has since returned $842,189 to the U.S. Department of Energy for what DOE calls “questionable labor costs incurred in the third quarter” at the Holland plant. A division of LG Chem of Korea, the company received a stimulus grant to make advanced batteries for electric vehicles but did not begin production last year as planned.

A Grand Rapids television station reported in October that some current and former LG Chem employees claimed they had had little or nothing to do for months. The TV report also quoted an official at the federal Recovery Accountability and Transparency Board who said the televised report would be passed on to the inspector general at the Department of Energy. The board was established by the American Recovery and Reinvestment Act of 2009 to monitor use of the stimulus funds.

In February 2010, LG Chem Michigan was awarded more than $150 million in American Recovery and Reinvestment Act funding through DOE to cover half the cost of building a battery cell manufacturing plant in Holland, creating more than 440 jobs.

Under the grant, by the end of 2013 the plant is supposed to produce enough lithium-ion polymer batteries for 60,000 electric vehicles a year, and assembly was supposed to begin in 2012. Assembly has not begun yet, however.

The Feb. 8 report from DOE states that “based on progress to date and despite the expenditures of $142 million in Recovery Act funds, LG Chem Michigan had not yet achieved the objectives outlined in its Department-approved project plan.”

DOE said only about 60 percent of the production capacity specified in the grant agreement was constructed even though nearly $142 million of DOE’s $150 million funding had been spent. The report states LG Chem Michigan management told DOE it had no plans to complete the remaining lines unless demand improved dramatically, and DOE added it had found that LG Chem had significantly underestimated labor costs, “a primary cause of its inability to complete planned construction.”

The DOE report said LG Chem Michigan officials indicated they had not begun production at the facility because demand for the Chevrolet Volt, the U.S.-manufactured vehicle for which the plant was to produce battery cells, had not developed as anticipated.

The company’s performance period spelled out in the grant runs through May. DOE said “the expected benefits of the project are not likely to be realized within the originally anticipated timeframes.”

On Feb. 13, LC Chem Michigan responded with a statement that said it agreed with the DOE that the labor costs DOE had reimbursed were not allowed under terms of the federal grant.

“LG Chem has accepted the government’s decision and has reimbursed the government for the full amount. LG Chem Michigan has also established internal safeguards to prevent this from happening again,” the statement said. It also said the company remains “fully committed to launching production at LG Chem Michigan’s facility in Holland,” and noted that “LG Chem Michigan has invested $150 million in the people that it has hired and in completing construction” of the plant.

Lakeshore Advantage, an economic development agency based in Zeeland, played a role in helping bring LG Chem to Holland. Lakeshore Advantage President Randy Thelen said that, despite the setbacks, he is certain LG Chem will produce batteries there.

“The company has consistently pushed toward that goal,” said Thelen.

“The market hasn’t developed as fast as anybody would have liked, so they’re wrestling with that, but clearly they are proceeding in that direction. A company doesn’t keep 200 people employed with the expectation of not producing. Their intention is to produce and every conversation we have with them is right along those lines,” he said.

The LG Chem parent company in Korea is the largest chemical company there and a major producer of batteries for electric vehicles.

Pete Daly is a Grand Rapids Business Journal staff reporter who covers small business, banking and finance, food service and agriculture and government. Email Pete at pdaly at grbj dot com. Follow him on Twitter @PeteDalyGR

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